14.2.

05T CONTRACTS
14.2.05T11 ROLES OF PARTIES IN A PROJECT

The building team consists of the owner (client), architect, engineers, contractor(s) etc
and is formed to co-operatively plan, design and execute a particular project in the best
and most economical manner within the stipulated completion time. The owner forms the
construction team to serve his interest through the services of both the contractor and
architect. The roles of the constituent parties of any construction team depend upon the
scope and nature of the work.

CLIENT
The owner, who may be an individual, a group of individuals, a private company, a
government department or a public authority, wants the work done, promises to pay for
its execution and will own it when it is completed. The client therefore has the ultimate
authority over the project and is the final holder of major decision-making power
regarding managerial and administrative aspects. He approves changes, if any, in the
project scope or schedules, controls the project resources such as manpower, funds and
property and arranges for proper maintenance of the work after work has been completed.
Commencement
a His first task is to analyze and collect all the relevant information that is available
to him in order to give the designer the clearest and broadest picture of his
requirements with special thought to: space available, location, use of new
building, cost, time limits.
b He must consider his legal responsibilities regarding the land, freehold or leases,
most likely calling upon the services of a solicitor at this point.
c The financial aspects of the proposed project have to be carefully considered, with
consideration being made to drawing regular sums from his account to meet the
contractor‟s payments.
d Engage a designer, usually the architect, to carry out his wishes.
e Upon receiving architect‟s views on type, size, cost of building, consider whether
the project should proceed.
f If project proceeds, sign contract after agreeing to tender figure.
g Any necessary insurances required by client must be arranged.
During Contract
h At the relevant times as stated in the form of contract, meet necessary contractual
payments by honouring certificates presented by contractor.

Completion
i Honour the necessary payments of the penultimate certificates, extra contractual
claims (if satisfied that they are accurate) and professional fees.
j Make settlement on final certificate.

ARCHITECT
He is a person with imagination and executive capacity to fulfill the client‟s
need by designing for pleasing appearance and to assist the engineers during the design
process.
Commencement
a Formulating the client‟s requirements into an understandable form, bearing in mind
any statutory conditions that may apply. It will be advantageous to the client at this
stage if he can be shown work of a similar nature so that he may obtain a visual
impression of shape, type of materials, size and so on.
b Bring together a team to give guidance on specific points such as a structural
engineer, quantity surveyor, internal services
c Upon assessing cost limits and time scale, sketch plans, enabling client to approve
or otherwise, before more final drawings are prepared. The cost of the building will
have been broken down into elements at this stage with approximate values so that
if costs are to be cut, it can be done in sections e.g. structure, internal finishings.
d When general agreement has been reached between the architect, his team and the
client, the architect can now proceed to produce his contract drawing to enable
tenders to be obtained.
e Project drawings complete and bills of quantities prepared, the work can now be
put out to tender.
f Upon receipt of checked tenders and the acceptance of one, an inaugural meeting is
arranged to clear up salient points that may arise, including a pre-planning period
for the building.
g Approves the contractor‟s programme and his proposed method of working

Contract Period
h Keep client informed as to project progress and issue architect instructions as
necessary.
i Evaluation of extra costs incurred by the contractor and allocation of liability for
damage to the works or public utilities.
j Pass on interim certificates of payments to builder (period as stated in formal
contract).
k Assessment of the rate of progress against completion date and any extension to
the contract period
l Issue of further drawings and variation orders to supplement, delete or modify any
part of the building
 m Suspension of the works due to the weather, default of the contractor, reasons of
safety or the presence of unforeseen physical conditions or artificial obstructions

Completion
n Upon completion of project, issue certificate of completion.
o Issue certificate of making good defects, normally six months after completion.

QUANTITY SURVEYOR
Although the quantity surveyor is a member of the architect‟s team from very
early on, he must have a very close relationship with the contractor upon acceptance of
the tender, for it will be his role to cost valuations, variations and the like and, in so
doing, remain completely impartial and without favour to either side and so produce
harmony in his role of project account.
Commencement
a Prepare an approximate cost from sketch drawings, assembling element costs, so
that should the client‟s sum be exceeded, the architect can consider each element of
the building in reasonable isolation, enabling him to pare costs as necessary.
b Upon acceptance by the client of costs and scheme and upon receipt of architect‟s
drawing prepares a bill of quantities in accordance with the current Standard
Method of Measurement, and tender documents before tendering.
c The contractors selected for tendering will each receive a copy of unpriced bills,
together with drawings upon which to estimate the project costs. Upon receipt of
the tender and now priced bill, the quantity surveyor checks the accuracy to ensure
that the builder has made no serious errors which could cause complications at a
later date.

Contract Period
d Carry out monthly valuations, pricing of variation orders etc in conjunction with
the contractor who is allowed to be present at such times, enabling him to receive
payment from the client via the architect‟s interim certificates at regular intervals.
e Must keep architect informed as to running cost of project. He has to assess the
extra costs due to specific features and prepare the cash-flow statement during
construction.

Completion
f Prepare, with the aid of builder‟s receipts and other documents, the final accounts.
g Assist the architect in discussions with the builder as to extra contractual costs.

ENGINEERS
a Part of the architect‟s team whose responsibility is to help in the design of the
project within the scope of their specialist fields.
b Produce calculations or other relevant data that may be required to assist the
architect in his design, the quantity surveyor in his cost control, or the local
authority in its assessment of the suitability of the project regarding statutory
requirements.
 c Issue of further drawings and variation orders to supplement, modify or re-design
any part of the work as may become necessary.
d Application of the test of satisfaction as the standard of compliance for all matters
pertaining to the materials

The engineer for the works is most unlikely to be able to give his undivided
attention to the supervision of the contract for he will have other duties, other contracts to
administer and will perhaps have only limited time to spare for the main aspects of its
management let alone the detailed control of the work on the site. For this reason the
resident engineer (site agent) is appointed.
The basic powers and duties of the site agent are closely restricted and are in fact
almost wholly negative in nature. His work is to ensure the contractor executes the work
in accordance with the specifications, drawings and other contract documents and
consequently he can only instruct the removal, replacement or re-execution of improper
materials or workmanship.

CLERK OF WORKS
Employed on large contracts as the architect‟s representative on site.
a Inspect quality of work in accordance with drawing and specification. He will
make regular reports to the architect and it is important that he keeps a site diary
throughout the project which will be invaluable in the case of any disputes arising.
b Check setting out and also check other parts of the work during construction to
ensure they conform to requirements.

The COW has, on paper, no authority (only liaison powers), but as he will have the
backing of the architect on most occasions, the builder will usually bend to his wishes
and should treat him as a senior member of the project team.

CONTRACTOR
Commencement
a Upon receiving the application to tender decides whether or not, with the
resources, manpower and general management and administrative set up at his
command, to take up the project if successful, complete it according to the
architect‟s wishes as stated in the bill/specification and drawing.
b Before the tender is complete, carry out a full site investigation so that any
unforeseen problems can be noted to ensure that they will not cause delays or extra
costs once the contract is underway.
c On completion of the estimate which will have been obtained from accurate study
of the bill of quantities, drawing, site investigation, suppliers‟ and subcontractors‟
quotations, the board of directors or principal of the firm will decide upon the final
tender figure.
d If tender is accepted submit a copy of the priced bills to the quantity surveyor for
consideration to enable him to satisfy the architect that no serious omissions or
faults have been made in the make-up of the tender figure.
e Upon the architect and the contractor being satisfied with the price a meeting is
arranged between all the parties concerned to discuss all the arrangements,
 conditions of contract and for the signing of the same, when all disagreements and
minor problems have been solved.
f Make all the necessary arrangements for labour, machinery, materials, power
connection etc in order to complete the project within stipulated time and cost.

Contract Period
g If tender is accepted call upon his resources and plan his work and that of any
subcontractors for the contract duration.
h Arrange a meeting with the architect, subcontractors and other interested parties
upon completion of the master programme to discuss it and agree on it.
i Control labour, including subcontractors, and materials for the erection of the
project, ensuring that the programme and costs are maintained, whilst at all times
bearing in mind that all legislation affecting the construction of buildings is
adhered to.
j Organise the site staff and at all times work with the clerk of works to ensure
harmony between parties.

Completion
k Ensure the quantity surveyor is given all the information he requires to complete
the final account and to work out extra contractual payments as necessary.
l Carry out his obligation to complete the defects liability clause, and maintenance
work as agreed at the commencement of the project.

LOCAL AUTHORITIES
a Have a responsibility, not only to the client ensuring that construction of the
project conforms to the Building Regulations, but also to the public and
community at large to enforce the various Acts of Parliament that control the
erection, alteration and repair of buildings.
b Upon receiving the „Notice of Intention‟ to build, the local authority will state the
relevant information that they require to assist in the approving of the plans, e.g.
structural calculations, drawing, etc.
c Upon approval by the local authority and Town and Country Planning, the builder
will be given permission to start. It is an offence to commence construction before
this approval has been given, even if the building does comply with Regulations.
d At commencement of work on site, the builder must notify the authority through a
specially supplied form or card given by the authority passing the plans, to be
returned at various stages of construction, e.g. foundations, damp proof course, etc,
and one for final project completion.

The local authority employs building inspectors to check and administer the
Building Regulations. They visit the site upon receipt of the aforementioned forms, a
penalty being payable for failure to notify. Their duties on behalf of the local authority
are wide and varied but in an outline are:
 Book in plans where deposited giving register number
 Check for compliance with building regulations
  Make a list of any clarifications and/or amendments relating to plans
before they are passed
 May contact architect to discuss amendments, who may resubmit amended
plans within given time scale otherwise the inspector will reject the
application unless extension of time is asked for.
 Upon satisfactory amendments and passing the inspector will issue
approval notice. A copy will be sent to architect with plans stamped
“PASSED” together with stage construction notice. Generally notices
include:
a Commencement – states work has started
b Excavation of foundation – in correct place
c Concrete foundation – check depth of mix
d Damp proof course
e Concrete over site
f Drains
g Completion notice
If during the cause of inspection, the inspector finds anything which does not
comply he may serve notice on the owner to put the work in order.

FACTORY INSPECTOR
Employed by the Ministry of Labour, whose task is to
a Ensure that the Health and Safety at Work etc Act is implemented.
b Ensure that the Construction Regulations as laid down in Section 176 of the
Factories Act are carried out in respect of safety, health and welfare.

SUB-CONTRACTORS
In some projects the contractor may sublet part of the work to sub contractors
because he may not have the required infrastructure for certain jobs. Major building
project sub-contracting, the extent of which can vary enormously, must be done with the
architect‟s approval.
Even when the client specifies in the contract document that a particular firm is to
be used to supply certain materials (nominated supplier) or execute some part of the
works (nominated sub-contractor) the workmanship, programming, safety precautions
and mistakes of that firm are covered by the main contractor‟s obligations just as much as
if he chose the supplier or sub-contractor himself or did the work with his own resources.
The resources for this are both contractual and practical. In contractual terms the only
agreement to which the client is a party is the one he has with the main contractor. In
practical terms it would be difficult for the architect, resident engineer to supervise
several sub-contractors, each subject to a different agreement with the main contractor.
Examples of sub-contractors:
i) plastering sub-contractors
ii) flooring ”
iii) painting ”
iv) demolition ”
v) plant-hire firms
vi) scaffolding sub-contractors
 vii) glazing ”
viii) roofing ”
ix) reinforced concrete specialists

The firms are experts in their field, resulting in a high standard of work at very
competitive prices.

SUPPLIERS
a Upon being asked to quote for supplying materials, be satisfied that they can
complete all obligations regarding any special conditions such as phasing of
materials
b Make sure that samples sent out are a fair reflection of bulk goods
c Ensure that delivery dates are maintained
d Give the recognized cash and trade discounts
e Submit accounts on time for payment

NOMINATED SUB-CONTRACTORS AND NOMINATED SUPPLIERS

The architect/client may nominate or appoint a sub-contractor or supplier to carry
out duties on a project as long as the contract makes no reasonable objection to their use.
Contracts should be formed between nominated parties and the contractor basically
to ensure that materials supplied or work executed is of a satisfactory standard and that
for sub-contractors‟ obligations as to such items as insurance, completion on time
together with 2½% discount allowance on contractors certificate payments are made,
whilst for suppliers, goods showing defects are replaced and if necessary, contractors
compensated for any expenses incurred.

Revision Question
Sketch a flow diagram to show the various parties involved in a construction project
and their relationship. (10mks)

14.2.05T12 TYPES OF CONTRACTS

A contract is a verbal or written legal agreement between two or more parties that
says what each must do for, or give to, the other. If a contractor is successful in his tender
and is asked to undertake the project, the next step is the signing of a contract between
him and the client.

Essentials of a Valid Contract

For any contract to be valid it must contain various essentials:
1. There must be an offer and acceptance
2. There must be an intention to create legal relations
3. The contract must be either under seal or consideration: each party to the contract
must receive some sort of benefit or gain from the contract.
4. The parties must have capacity to contract (capacity in law, e.g. of age, of sound
mind).
 5. There must be genuine consent by the parties to the terms of the contract e.g. not
entered into by mistake, fraud etc.
6. The contract must be legal and possible.

In the absence of any or more of these essentials, the contract may be void (one in
which the law regards as no contract at all), voidable – one which is valid unless and
until it is treated as void by one of the parties e.g. incapacity, fraud, misrepresentation,
duress.

Labour Only Contract

Labour only contract is a type of contract whereby the owner supplies all the
materials while the contractor supplies only the labour and sometimes also the
equipment, so the tender is only on the labour terms of the contract. This type of contract
suits the small contractor with no financing means or abilities. It is extensively used by
cooperatives of skilled labourers which supply a certain part of the labour force, for
instance, concreters, masons, plasterers etc.
Such a contract may pose problems and claims in case the owner or main contractor
will not be in a position to ensure a steady supply of materials or provide the necessary
plans and specifications in time thus causing the labour force to stay idle.

Cost Reimbursement Contracts

In some occasions, it may not be possible to ascertain by measurement the full
extent and nature of the work involved before the contract gets underway. However the
client may still wish to appoint a contractor and make a start on the job as soon as
possible resulting in decisions and final design work being determined as the contract
progresses. In such circumstances, the client reimburses the contractor a suitable cost plus
(all labour, sub-contractors, material, plant) basis where the actual cost of construction
are paid together with a fee which represents the contractor‟s management and technical
costs, overheads and profit. A contract of this nature is known as cost reimbursement
contract. The features of this type of contract include:
i) It encourages a greater degree of cooperation between the contractor and the
client working together closely in the design stages and decision-making.
ii) Since the contractor is paid in accordance with his actual costs incurred (known
as prime cost) weekly time sheets verified by the architect/clerk of works
submitted to establish labour costs, quotations, delivery tickets and invoices for
material costs and plant returns for machinery and equipment used must be
carefully kept.
iii) The valuing of variations presents no problems as the cost involved in design
changes etc are simply absorbed into the total figure as the work proceeds.
iv) Close coordination must be maintained between the architect and the contractor
in establishing the optimum level of manpower and the extent to which plant
and equipment is needed at each stage in the development.
v) The contract may be executed not only by the main contractor but also by
nominated and private sub-contractors whose work may be valued on a different
basis.
Target Cost Contracts
In this type of contract a provisional estimate of the prime cost is prepared and the
figure agreed as being realistic by both the contractor and client before work commences.
To this sum is added the contractor‟s fee for overheads and profits and the resulting
figure is adopted as the “target cost” for the project. However an opportunity for an added
“bonus” to be earned by the contractor is introduced in relation to the amount by which
the actual cost, including the original fee, either falls short of or exceeds the target figure.
The contractor‟s fee for overheads and profits is fixed neither by a percentage nor a set
sum, but with a fee that can be increased or decreased by means of an agreed percentage
by the parties.
A contract of this type will provide an incentive to a contractor to complete the
works at as low a price as possible for in so doing he will benefit by receiving the agreed
percentage of the savings. However, upon the project costing more than the agreed target
cost, he will forfeit some of his fee. It should be noted that in the process of trying to
reduce his cost, the contractor could comprise on the quality of work.

Example
(i) Given that the target cost of a project is sh36 million and the increase/decrease
percentage is 20%. If it costs sh50 million on completion, calculate the fee paid.
(ii) If on completion the costs total was sh30 million, calculate the fee paid.
(Using the target cost with fixed fee method)

Solution
(i) Target cost = 36m  20%
On completion it cost 50m.
50 – 36 = 14
20
Reduction = 14  2.8 million
100
Thus if the initially agreed fee was 20% of sh36m
20
 36  7.2m
100
Fee paid = 7.2 – 2.8 = sh4.4 m

(ii) If on completion it cost sh30 m

36 – 30 = 6m
20
 6  1.2m
100
20
Agreed fee was  36  7.2m
100
Actual fee paid = 7.2 + 1.2 = sh8.4 million

Package Deal
This is so termed because of all-in service it provides. In a contract of this nature
only two parties exist i.e. the client and the contractor. The contractor will normally
provide all the services, such as architect, quantity surveyor, consultants etc.
 Under the package deal a client will provide brief details as to his requirements and
either select a contractor or offer it to open or selected methods, leaving the task of
design and costs to the builder. Generally this will concern the industrial type of building
and may leave the client little choice of design resulting in his not always getting what he
hoped for. The client has no independent consultant to advise him on design or costs.

Continuity Contract
On occasions where a client foresees further work beyond the immediate project, he
may wish to maintain continuity of the work with the same contractor. An ideal
opportunity to make use of this sort of arrangement would present itself where a long-
term large-scale housing scheme is planned involving for example 300 houses. Such a
large contract if attempted as a single job would not only be extremely costly but also
difficult to manage with only one contractor having to commit a great deal of resources to
that job. The best thing in such a situation is to select the contractor for, say, phase I only
by normal means and thereafter negotiating with that contractor for the remaining phases.
This is known as continuity contract.

Serial Contract
This type of contract could be classed as a negotiated contract. A builder is asked to
tender for one particular project, bearing in mind that if he is successful he will be asked
to negotiate for a number of projects of the same character. For example, a local authority
intending to build four or five schools of the same type within their area. The
approximate extent of the series of contracts will be known at the tender stage even
though the design work on some of them may as yet be incomplete.
With this type of contract, accurate bills of quantities and a careful estimate can be
prepared, the builder bearing in mind that if he succeeds in winning the contract he is
assured of a continuation of work. He will therefore often cut costs to a minimum in the
hope of being successful, resulting in a very competitive selection of tenders. A builder
should be able to cut his costs knowing that, as the projects are built, his team should
become more efficient so the productivity rate should be raised, also his organization will
be attuned to the work owing to its repetitive nature and, of course, any new plant
purchased is guaranteed a full working life for the duration of the projects. A safeguard
for the client is generally entered as a clause in the contract, stipulating that if the work is
not up to standard, subsequent contracts will be withdrawn.

Term Contracts
A term contract is a type of continuity contract which has been adopted to suit
situations where a continuous programme of work is required on a particular site or
within a certain defined area.
This system is particularly applicable to government establishments, bases for the
armed forces, large-scale industrial sites and oil refineries where there will be a constant
need for maintenance and repairs together with small-scale and medium-scale extension
and alteration work. When tendering, contractors are aware of the nature and approximate
value of the work based on previous contracts but at this stage the actual extent of the
work cannot be known and tenders are submitted in the knowledge that the successful
contract will undertake to carry out all the work given to him over a certain period of
time or “term”, a typical period being perhaps 2 years.
The tendering documents will normally be a schedule of rates covering most of the
work normally encountered with contractor quoting a single percentage addition or
reduction on the schedule as a whole to cover preliminaries, overheads and profits. The
successful contractor will be issued to him from time to time by the supervising officer or
clerk of works and the work valued in accordance with the schedule rates amended by the
percentage addition/reduction.
On expiry of the two-year term the contract will be up for a renewal and the
contractor selection process adopted once more.

14.2.05T13 CONTRACT DOCUMENTS

Construction works intended to be awarded to contractors are given wide publicity so

that a sufficient number of interested parties may bid for the work. Usually the lowest is
accepted unless there are reasons to the contrary. A valid contract which clearly describes
the work should also define the rights and obligations of the owner and the contractors in
a document called the contract document.
The main components of a typical set of contract documents include:

1. WORKING DRAWINGS
These comprise a complete set of fully dimensioned drawings including plans,
elevations, sections, detailed drawings and site plan.
Plan: The site plan shows the relationship of the building to the site boundaries and
adjoining roads and buildings. The floor plans show the position of the walls,
partitions, doors and windows. The roof plan shows how to place the steel/timber in
form of trusses.
Elevations: These are external views of the building. They show the general appearance
and locations of doors and windows.
Sections: These show the depth of the foundation and the levels of floors and roofs as
well as sizes of structural elements like trusses, beams, columns, stairs etc.

After the building is designed, the working drawings are produced by the
architect, structural engineers or the architectural technician, and are used by the main
contractor and subcontractor on site in construction of building. They are generally
considered to be the heart of the contract documents and are used for other purposes such
as:
a Obtaining planning and building control approval from the local authority
b Preparing specifications of the work
c Preparing bill of quantities
d Preparing a tender estimate for the project
Any subsequent amendments, changes or additional drawings may constitute
variations to the contract involving the contractor in extra cost and delays for which he
will be able to seek payment unless their arrival is not so timed to actually disrupt the
execution of the works.
 The contract documents must contain a list of all the drawings, each with a brief
explanatory title and unique number. Frequently a suffix is added to the drawing numbers
in order to emphasize the special status of the set issued for the contract.

2. SPECIFICATIONS
Specifications is a document prepared by the architect that describes the nature and
class of work, materials to be used, labour employed, method of work, precautions to be
taken and quality of workmanship for the project. It amplifies the contractor‟s duties and
obligations as set out in the conditions of contract.
The drawings of a building or structure show the arrangement of rooms and
dimensions and includes a brief description of the different parts but do not furnish the
details of different items of work, the quantity of materials, workmanship etc, which are
all described in the specifications.
Specifications serve the following purposes:
a Guide the bidders at the time of tendering for arriving at a fair price for the
work involved.
b Provide guidance for execution and supervision of work and purchase of
materials
c State the acceptance criteria for different items of work

Typical items included in specification

i) Site description
ii) Restrictions (limited access and working hours etc)
iii) Availability of services (water, electricity, gas, telephone etc)
iv) Descriptions of workmanship – quality, fixing and jointing
v) Description of materials – quality, size, tolerance and finish
vi) Other requirements: site clearance, making good on completion,
nominated suppliers and sub-contractors

3. BILL OF QUANTITIES
The bill of quantities is a schedule prepared by the quantity surveyor listing
constituent parts of the building with identifying descriptions, estimate quantities and
priced rates for each item. This document gives a complete description and measures of
the quantities of labour, materials and other items required to carry out the work based on
the drawing, specifications and schedules. Its function is to provide data for comparison
and assessment of bids at tender stage and thereafter to act as a schedule for rates for
valuation purposes and assist the quantity surveyor in assessing the rate for any new or
varied work.
The quantity surveyor reads the working drawings and specifications to determine
the volumes, areas, linear measurements of works required. When these are written up as
the bills of quantities the contractor decides how much to charge for each part of the job
and adds up these to determine the total cost of the building work. To this he then adds an
amount for overheads and profit. As far as the contract is concerned errors in extending a
rate (i.e. multiplying it by the quantity) or in totaling up the various elements of the bill
are of no effect. The rate themselves however, are binding and even if they contain
mistakes then the contractor will be held to them unless there are exceptional
circumstances.
All bills of quantities will contain the following information:
a Preliminaries: Deal with the general particulars of the work such as the
names of the parties involved, details of the work, description of the site and
conditions of contract.
b Preamble: Introductory clauses to each trade concerning description of the
materials and workmanship similar to those stated in the specifications.
c Measured Quantities: A description and measurement of an item of work, the
measurement being given in metre (m), metres squared (m2), kilogrammes (kg)
or just enumerated as appropriate.
d Provisional Quantities: Where an item cannot be accurately measured and
approximate quantity to be allowed for can be stated. Adjustments will be
made when the full extent of the work is known.
e Provisional Sum: A sum of money to be included in the tender work which has
not yet been finally detailed or for a “contingency sum” to cover the cost of any
unforeseen work.
f Prime Cost Sum: An amount of money to be included in the tender for work for
services or materials provided by a nominated sub-contractor, supplier or
statutory body.

4. CONDITIONS OF CONTRACT
This is a document that describes the rights and obligations of all parties under a
given contract. The parties should be thoroughly conversant with the precise provisions
and true importance of each clause in the contract agreement. Following are the important
conditions of contract:
a Time of Completion: The contractor is required to complete the project within
the agreed time of completion which is specified in a suitable unit of time
(years, months, weeks etc) depending upon the nature and scope of the work.
b Delay and extension of time: Delay in completion of the project not attributed
to the contract should be brought to the notice of the owner by the contractor in
writing within the time specified in the contract for seeking the extension of
time. The owner will satisfy himself that the delay is not on account of a lapse
on the part of the contractor before granting suitable extension of time.
c Penalty: It is a fine imposed on the contractor for not fulfilling his contractual
obligations such as failure to maintain the required progress of work, delay in
completion, poor quality of work etc.
d Compensation of delay in Completion of Project: The contractor is liable to pay
compensation to the owner for delay attributed to him in completion of the
project. The amount of compensation may be stated as a percentage of the
estimated cost of work for each unit of time of delay.
e Liquidated damages: It is a fixed stipulated sum payable by the contractor on
account of penalty for delays and does not bear any relationship to the real
damage to the owner.
f Variations: A modification of the specification by the client/architect. The
contractor must be issued with a written variation order or architect instruction.
 g Valuation of variations: The valuation of variations is based on change orders
issued in writing by the owner. Generally the variations in individual items of
work should not be more than 25% and variation in total cost should not exceed
10%.
h Interim payment: A monthly or periodic payment made to the contractor by the
client.
i Defects liability period: A period of normally six months after practical
completion to allow any defects to become apparent. Where the contractor is
called upon to repair any defects therein, he will be entitled to the retention fee
after any defects have been rectified to the architect‟s satisfaction.
j Retention fee: A sum of money which is retained by the client until the end of
any agreed defects liability period.
k Settlement of disputes: Efforts should be made to resolve disputes amicably
between the owner and the contractor through mutual discussions and
negotiations. Disputes may arise between the contractor and the owner because
of several factors: defective work, excess consumption of materials etc. The
disputes can be settled through litigation in a court of law or, where the
contract permits, through arbitration. Arbitration is the process of hearing and
determination of a dispute by an impartial referee selected or agreed upon by
the parties concerned.
l Natural disasters: These are acts of nature such as unprecedented
rainfall/floods, earthquakes, hurricanes, fire etc. These disasters along with
occurrence of riot, civil commotion, revolts etc. are beyond the control of the
contractor and may lead to financial or time loss. The contractor should obtain
an insurance policy for such risks as can be covered by insurance. In the event
of financial or time loss the contractor can claim financial compensation from
the owner for risks that are not insurable and an extension of time for all such
risks.
m Price escalation: During execution of the work, labour, wages and materials
prices may increase as a result of inflation. The contract conditions should
therefore include an appropriate clause for payment of escalation to the
contractor.

5. FORM OF TENDER AND AGREEMENT

It is a pro-forma letter addressed to the client and requiring signature by the
contractor which promises to contract and complete the whole of the works, for such sum
as may be ascertained in accordance with the conditions of contract. It comprises bill of
quantities, contractor‟s rates, total cost of work, time for completion, security money to
be deposited and penalty clauses. Usually the form of tender and agreement refers to an
attached appendix which sets out such essential details as:
 The value of the bond which the contractor may be required to arrange
through a bank or insurance company to guarantee performance of the
contract and which would be forfeited to the client in the event of the
contractor failure.
 The time for completion of the work.
  The liquidated damages payable to the client for each day or week of delay
in completion (“liquidated” means that the likely loss to the employer has
been ascertained and expressed in monetary terms)
 The length of time for which the contractor must maintain the work after
completion (defects liability period).
 The minimum value of work, which must be completed in any month before
the client will accept an account for payment.
As most forms to tender state that the form itself plus the client‟s letter of
acceptance constitute a binding contract unless and until a formal agreement is prepared
and executed there is no need in law to do more.

6. SCHEDULE OF RATES
Is made by the builder detailing out the material costs, labour charges and plant
charges.

14.2.05.T14 TENDERING METHODS

A tender is a formal offer to supply goods or do work at a stated price.

The majority of contractors still obtain much of their work by tendering, especially
for new work or work of some importance, as opposed to smaller or repair work where
the client will generally approach the local contractor – or a recommended one – to carry
out the work.
Tendering takes various forms but all have one thing in common – they cost money
to prepare and when it is considered that any number between 4 and 12 firms could be
after the same work and that only one will be lucky, it is clear that much money is wasted
by the remainder.
In tendering for construction work tenders are invited and the contract is awarded at
the best available terms and conditions. During this stage the owner enters into a firm
commitment regarding the project expenditure and the procedures of construction are
carefully defined. Pre-qualification of contractor(s) involves an investigation of the
potential of contractor‟s financial, managerial and physical resources and his experience
of handling similar projects.
Irrespective of the final contractual arrangement chosen by the client the method of
selecting the contractor must first be established. Basically, there are two methods of
tendering:
i) Competitive tendering
ii) Negotiated tendering

1. COMPETITIVE TENDERING
Price obtained from a number of contracts, all competing genuinely with each other
for any given works will probably give the best value of money and will be suitable for a
large majority of building projects. Although it is generally accepted that the basis of
completion is normally related to the process of obtaining the lowest possible price for
the work, this need not necessarily be the case. Other variables need to be considered,
determined beforehand, and stated clearly in the tender document.
 Having decided to award the contract on a competitive basis the client must further
consider whether to choose open or selective methods.

Open Tendering
This provides for any builder who feels capable of performing the work to submit a
price. The client advertises in the national press and in various technical journals, giving
a brief description of the proposed works and anticipated starting date. Thus the proposed
work is brought to the attention of any contractor whether large or small, good or bad,
local or international who cares to search through the appropriate publications. In this
way the client doubtless can gain the biggest possible response to his advertisement,
thereby achieving maximum possible competition and almost certainly the lowest
possible price.
To prevent anyone from sending for particulars just to „have a look‟, it is a general
rule for the advertisement to state that a non-refundable fee must be paid. This fee also
serves to meet the cost of the advertisement.

Disadvantages of Open Tendering

1. Much time is taken up and lost through the placing of notices in the press, the
preparation of the drawings, bills of quantities, sending documents out and receiving
the same volume back to be sorted and checked.
2. The lowest tenderer may not have resources, manpower or management to carry out
the project satisfactorily and consequently will not be a suitable contender for the
work.
3. Poor workmanship and use of unsatisfactory materials to combat low cost figures
are seldom justifiable and this can result in the use of an „unknown‟ contractor.
4. It leaves much to be desired when from a list of perhaps 40 to 50 tenderers, the
client has to look for perhaps the 6th lowest to find the name of a reputable builder
who could be entrusted with the job.
5. The lowest tender need not be accepted, but if public money is being spent, it
generally is.
6. On many occasions the cost of preparing a tender could be very high especially
where specialist engineering contracts or a large degree of design work is involved.

Selective Tendering
In this method competition between contractors is still maintained by the client
while at the same time unsuitable contractors are eliminated from the process. A list of
firms who are suitable and capable of undertaking the contract is prepared preferably
with the help of the architect, quantity surveyor and client all in consultation with each
other. The client may insist on a particular contractor being included in the list.
Alternatively an advertisement may be placed in the press inviting any contractor as in
open tendering to apply. This system differs from open tendering in that from this initial
list only certain competent contractors will be invited to submit a tender.
When selecting the builders from the short list the following points are taken into
consideration:
a The contractor‟s financial standing and record
 b The contractor‟s recent experience of completing similar work within the
specified time. (Local authorities and architects in private practice have a list of
such builders).
c The structure of the firm i.e. technical and managerial staff, workforce and
back-up facilities
d The firms‟ capability of accepting the work at the required time.

Disadvantages of Selective Tendering

1. Builders knowing other members on the list may work to their own rota system to
share out the work, leading to high prices.
2. Unless lists are frequently amended (e.g. annually), firms of improved ability may
not be considered.
3. Lists are still often too long – this may be advantageous if list is rotated so all have
an equal chance of work over a period.

This method, although having faults, will in general reduce costs and save time.

2. NEGOTIATED TENDERING
In this system of tendering, the client will leave much of the negotiating to his
professional advisers who, upon choosing a builder capable of carrying out the work, will
resolve terms. Occasions when it would suit the client to approach only one contractor to
tender include:
a A quick start required: The need for an early start to the project may be so
pressing as to warrant the saving of time needed to go out for competitive
tender. A builder can be selected almost immediately and the work can begin
while the final design and cost are being formulated.
b Business relationship: There may exist between two companies not
necessarily working in the same field, a good relationship of long standing
where a measure of reciprocal trading benefits both parties e.g. a builder may
agree to buy all of his company cars from a particular car distributor on the
understanding that should the dealer require further office accommodation,
warehouse facilities or repair and maintenance work, the builder would get the
business.
c Continuity Contract: New or additional work is awarded to a builder on the
basis of agreed terms and conditions of an existing contract. Such builder does
not require re-tendering and hence can save time and money through
negotiations.
d The State of the market: In remote areas there may be only one contractor
available if the job is not sufficiently attractive to outside contractors.
e Specialized Plant and Technique: Where a large contractor has developed
and patented a special technique, design or piece of equipment which is
considered to be a market leader and can be used to give good effect in the
building process. Whether to increase the speed of erection or to work more
efficiently or cheaply a client may find himself better off negotiating with the
contractor and taking advantage of his expertise rather than by use of more
traditional methods.
Advantages of Negotiated Tendering
1. A contractor will be brought in at a very early stage for consultation with the
designer.
2. Time and money are saved on the work done in unnecessary tendering.